Brexit will deconstruct Britain's industries
PUBLISHED: 16:00 09 February 2018
Gary Schwartz - for editorial use
Weaker, poorer, smaller. JAMES BALL looks at how Brexit will enfeeble Britain sector by sector.
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Jacob Rees-Mogg is on the warpath. The backbench faux-toff, who now leads a grouping of more than 50 hard Brexiteer Conservative MPs, is doubling down with his insistence that assessments produced by the civil service on the impact of Brexit have been doctored in order to sabotage Brexit, and suggest it will be harmful to the UK.
The reality, which Rees-Mogg is fanatically keen to avoid, is that there is no need for them to do so. As we saw last week when some details of the secret impact assessment leaked, what the government’s private briefings say match what experts in the UK and across the world have said in public: any Brexit will harm the UK, and a hard Brexit will cause much more severe damage than a soft one.
Given that the government have not agreed any details on what they would like Brexit to look like, forecasting its impact remains an uncertain business, but on sectors from fisheries to finance, people have made their best attempt at predicting the likely effects to come as a result of the UK’s vote in June 2016.
To see the real impact of Brexit, we don’t need a secret dossier pulled together in a basement at the centre of government: simply pulling together the opinions of the world’s experts on these topics paints that picture for us – and it’s not a pretty one.
The big picture
The leaked Brexit impact assessment reveals that the government believes that if the UK engages in a hard Brexit, leaving the customs union and single market, the economy will be 8% smaller in 15 years time than it would have been if the UK didn’t leave the EU.
On the face of it, this doesn’t look particularly dramatic: as ministers hurried to point out, the assessment still believes the UK economy will grow in the medium-to-long term, and 8% doesn’t feel like a drastic figure.
Its real-world impact, however, is huge: in practical terms, an economy 8% smaller than it otherwise would be is an economy £200bn a year worse off – an amount roughly equivalent to £6,500 for every single household in the country. For the government, that means around £88bn less in revenue every year.
That’s enough money to hire a million doctors, build more than 500,000 social homes, or to cover the entire cost of the UK military and education systems. At a time when government finances are under huge pressure, this is a vast sum of money to give up – and one which could be reduced markedly. A Brexit which would see the UK remain in the single market and customs union would, the analysis states, leave the UK economy just 2% smaller than the no-Brexit scenario – leaving the country £150bn-a-year better off, and the government with £66bn-a-year more than it would otherwise have.
A key argument deployed by keen Brexiteers is that the EU will be forced to give the UK a good Brexit deal because they rely on their ability to sell goods to the UK – because the EU sells more goods to the UK than the UK ships the other way, they say, they will be desperate to strike a generous deal to preserve that trade.
Analysis by the University of Birmingham, however, suggests something very different. The academics used international trade data to see how reliant different regions of the UK – and countries across the EU – were on trade with the EU, versus the rest of the world, to suggest how severe the impact of leaving would be in different areas.
The first finding was a severe blow to anyone hoping the EU would be desperate to strike a generous Brexit deal: the UK is far more exposed to severe economic impact from a post-Brexit loss of trade than almost all other EU nations, who would see relatively small losses. The main exception is certain regions of Ireland, which would see a smaller loss than most of the UK, but still a sizeable and damaging effect on their economies.
When it comes to UK exposure, the research found generally speaking around 12% of GDP was “exposed” to Brexit, versus less than 3% across the EU – meaning the UK has far more to lose from a bad deal or a breakdown in talks.
The research also found that regions which voted for Brexit were, generally, far more exposed to the negative effects of leaving. London, the research found, traded far more globally than most areas of the UK, leaving it potentially more resilient to a post-Brexit future. Regions which voted heavily for Brexit, including areas of north east England, Yorkshire, and the Midlands, risk losing much more substantial chunks of their economy if the post-Brexit future hurts trade with the EU.
Cumbria faces the highest exposure to Brexit, with 16% of its GDP relying on EU trade, closely followed by Gloucestershire, Wiltshire and North Somerset.
The UK government has prepared detailed analysis of the expected regional impact of Brexit, which is held by David Davis’s Department for Exiting the European Union, but is currently resisting releasing this information to MPs or the public.
So far, the UK’s university system is bearing up well under Brexit: the most recent data shows an increase in applications from EU nations – a welcome boost for a sector which serves as one of the UK’s key ‘exports’. Overseas students coming to the UK provide substantial income to universities, while their other spending in the country while they are studying provides a much broader boost to business.
More broadly, though, people in the sector are worried: many academics working in the UK are not UK citizens, and international competition for talent is fierce. University College London reported last year that 95% of its academics with EU nationality had received approaches from competitor universities in other EU countries to leave, and other universities report similar concerns around attracting and keeping talent.
The UK also stands to lose access to several huge pots of research funding controlled by the EU, including an £80bn Horizon2020 science research fund. At present the UK is keen to negotiate remaining a part of this and other schemes, but to date nothing has been agreed.
The financial sector
The public is – perhaps justifiably – not particularly fond of bankers, but their contribution to the economy is huge: the UK imports far more goods than we export, but we balance it by exporting far more ‘services’, such as banking, legal advice and consultancy, than we import. These sectors are the engines of the UK economy.
This does not bode well for our post-Brexit future. Most hard Brexit plans for the UK’s future with Europe involve the UK signing a future trade deal with Europe which would be likely to cover goods, but not services, making it harder for the UK to export services as we do now.
PriceWaterhouseCooper studied the likely effect of a hard Brexit on the UK financial services sector, and said the impacts would be significant. In the short term, they said, banks would create new legal structures to allow them to continue trading as they do now – a process which has already begun – but in the longer term, jobs and business would be relocated out of the country.
The effect of this would, they estimate, result in the UK eventually losing around £8bn a year of trade in financial services alone, with between 70,000 and 100,000 fewer jobs in the skilled and high-paying sector by 2030.
The fisheries sector is not a huge portion of the UK economy, but is a symbolically important one in the mind of many Brexiteers: resentment over EU rules on fishing, and quota limits, is one of the longest-running gripes against the EU.
However, fishing does not stand to be an obvious or easy winner after Brexit, with the UK facing the prospect of trying to renegotiate decades-old agreements governing where UK boats can fish, and crucially where they can sell their catches.
Much of the fish caught in UK boats and waters isn’t sold in the UK, because of different food preferences in the UK versus some of our European neighbours. As a result, the UK exports just under £1bn a year worth of fish to EU countries – a trade which could be severely damaged in a hard-Brexit scenario in which the EU imposed tariffs on the UK.
Even more significantly, a report prepared by the EU notes that the UK would lose automatic access to fish in EU waters, with these rights being redistributed among other nations. This doesn’t matter a great deal to Scottish fishers, who largely stay within UK waters, but the English fleet is hugely reliant on fishing in international waters. Most critically, UK boats catch much of the cod they take from Norwegian waters – meaning Brexit could even pose something of a risk to fish and chips.
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